Title I - Application of the proportionality principle

The proportionality principle aims to match governance arrangements consistently with the individual risk profile and business model of the institution and takes into account the individual position for which an assessment is made so that the objectives of the regulatory requirements are effectively achieved.

Institutions should take into account their size, their internal organisation and the nature, scale and complexity of their activities when developing and implementing policies and processes set out in these Guidelines. Significant institutions should have more sophisticated policies and processes, while in particular small and less complex institutions may implement simpler policies and processes. Institutions should note that the size or systemic importance of an institution may not, by itself, be indicative of the extent to which an institution is exposed to risks. Those policies and processes should, however, ensure compliance with the criteria specified in these Guidelines to assess the suitability of members of the management body and key function holders and the elements to take diversity into account when recruiting members to the management body and to provide sufficient resources for their induction and training.

All members of the management body and key function holders should, in any event, be of sufficiently good repute and have honesty and integrity, and all members of the management body should have independence of mind regardless of the institution’s size, internal organisation and the nature, scope and complexity of its activities, and the duties and responsibilities of the specific position, including memberships held in committees of the management body.

For the purpose of applying the principle of proportionality and in order to ensure the appropriate implementation of the governance requirements of Directive 2013/36/EU and Directive 2014/65/EU which the Guidelines further specify, the following criteria should be taken into account by institutions and competent authorities:

• a. the size of the institution in terms of the balance sheet total, the client assets held or managed, and/or the volume of transactions processed by the institution or its subsidiaries within the scope of prudential consolidation;
• b. the legal form of the institution, including whether or not the institution is part of a group and, if so, the proportionality assessment for the group;
• c. whether the institution is listed or not;
• d. the type of authorised activities and services performed by the institution (see also Annex 1 of Directive 2013/36/EU and Annex 1 of Directive 2014/65/EU);
• e. the geographical presence of the institution and the size of the operations in each jurisdiction;
• f. the underlying business model and strategy, the nature and complexity of the business activities, and the institution’s organisational structure;
• g. the risk strategy, risk appetite and actual risk profile of the institution, also taking into account the result of the annual capital adequacy assessment;
• h. the authorisation for institutions to use internal models for the measurement of capital requirements, where relevant;
• i. the type of clients¹⁷ ; and
• j. the nature and complexity of the products, contracts or instruments offered by the institution.

¹⁷ Directive 2014/65/EU defines a client in Article 4(1)(9), a professional client in Article 4(1)(10) and a retail client in Article 4(1)(11). Recital 103 of Directive 2014/65/EU also specifies that an eligible counterparty should be considered to be acting as a client, as described in Article 30 of that Directive.